Brent’s Credit and Debt blog

When you sign a credit card agreement, you are agreeing to an ‘open-ended’ line of credit. What does this mean, and how does it affect you?

Honestly, there is nothing to worry about here. If you think about the types of credit, there are really only two types that will affect most people. The first is credit card debt, and the second is something like a car loan or mortgage. If you think about it, the differences are pretty easy to spot:

With a traditional, or ‘close-ended’ (or fixed term) loan, like a car loan, you will have a payment schedule. Every month you will pay the same amount based on what you borrowed, the interest rate, and the number of months you have agreed to make payments in order to pay the car off. There is no variation in the payments. If you miss a payment, you owe that payment plus the next one as a lump sum. If you end up needing to change the terms of the loan, you will need to sign paperwork with your lender agreeing to what the new terms are. In many cases, these loans are secured by an asset

Let’s look at a credit card account as a contrast to a traditional loan. There is no way you, or your lender, can know exactly how much you will spend, or how much you will pay, on your card. Because there is no set payment schedule, and no amount that you will consistently owe, there is no way to calculate a payment persistently across the life of the loan. In addition, the length of time you will borrow the money is also unknown. Because these are all unknown variables, these types of loans are called ‘open-ended’.

Each state has its own rules for the statute of limitation for an open-ended loan vs. a traditional loan. Other than that, from a collection or legal standpoint, there really isn’t a lot of difference.

To get a copy of my FREE e-Book ‘The Top Ten Ways You Can Wreck Your Credit’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you should avoid doing concerning your credit, and what negative impacts can occur if you treat your credit wrong.

When you file bankruptcy, you are, by law, going to get relief from creditors. Now that you have filed, however, the collectors just keep on coming after you. Are they allowed to do that?

The short answer is no. They can’t try to collect on that debt.

Are you ready for the longer answer? I figured you might be.

When a collection agency buys an account, it has already been defaulted on. In other words, you didn’t pay your bills on time, and so someone is calling you to get some money. This is all perfectly legal, and in fact you agreed to it when you signed your loan paperwork, or when you clicked ‘OK’ to the terms and conditions of your credit card.

There are times, however, that your defaulted account is purchased after you filed bankruptcy, and before your lender is notified that you filed.

This happened to me. My satellite TV company wrote my account off, and then sold the account to not one, but two different collection companies! That seems a little iffy by itself, but isn’t really relevant here.

Here is how the debt collector looks at things: When you tell a collector that you filed for bankruptcy, they have to look at a couple of things. First, are you lying? Lots of people do lie and say they have filed when they didn’t. Unless you have paid your money and gotten a bankruptcy case number, you have not filed bankruptcy. In other words, just talking to a lawyer about it isn’t enough. If you have filed, just give the collector the case number, and your attorneys name if you used one, and they will verify the bankruptcy and leave you alone. If they bug you again, you can take action against them. However, if they can NOT verify the bankruptcy, then by law you are fair game.

A second thing the collector will look at is when your account was opened compared to when you filed bankruptcy. A bankruptcy will include accounts you had before filing, and in fact up to the day of filing. But it will not include accounts you open after filing for bankruptcy. If you go out and get a new credit card after filing for bankruptcy, you are liable for the credit card balance.

The collector will check things out, and if in fact you had that account included in bankruptcy, they will drop the collection effort. They may ask for documentation (send them to your lawyer), but they will have to drop it.

So, you may very well see an account or 2 that are in collections when you look at your credit report. Don’t panic, these are easy to clean up. Just contact the collection agency and get them removed.

To get a copy of my FREE e-Book ‘The Top 10 Questions A Debt Collector Might Ask You’, just click the link. You will be taken to a page where you can get more information about downloading the e-book. This book tells you what you might hear during a call from a collector, how they use the information they get from you, and how you can protect yourself by not divulging too much.